Alibaba shares fell 5.09% to $73.40 on Wednesday after the company disappointed the Wall Street with its fiscal first quarter results. However, HSBC says that investors might have overreacted. The investment firm says Alibaba is well positioned to benefit from the growth in online shopping in smaller towns and rural areas.

Is Alibaba Group Holding Ltd A Buy On Q1 Revenue Miss?

Excluding lottery sales, Alibaba’s GMV grew at 36%

Alibaba’s June quarter revenue jumped 28% YoY to $3.26 billion, missing analysts’ expectations of $3.39 billion. The gross merchandise volume (GMV) rose 34% to $109 billion. However, HSBC points out, the GMV grew at 36% and retail commerce revenue shot up by 29% if you exclude the now-suspended online lottery sales. HSBC reiterated its Buy rating on the stock, though it trimmed down the 12-month price objective from $124 to $117.

The Chinese e-commerce giant’s non-GAAP EBITDA margins of 52% were 320 basis points better than HSBC’s expectations. Alibaba’s non-GAAP EPS of 59 cents handily exceeded the Wall Street expectations. The investment firm points out that Alibaba has successfully transformed to mobile. The company’s mobile GMV skyrocketed 126% YoY to $60 billion, accounting for 55% of the total GMV. Mobile monetization rose 66 basis points YoY and 43 basis points QoQ to 2.15%.

Alibaba to leverage Suning’s network

Alibaba’s $4.6 billion investment in Suning should extend its logistics network and expand its online-to-offline channels. The next phase of the company’s growth is expected to come from smaller towns and rural areas. Suning has 1,600 outlets, 1,700 last-mile delivery stations, and 3,000 after-sales service stations. Its wide network would help Alibaba reach consumers even in remote areas.

What’s more, the company is aggressively expanding its international reach. Alibaba has named ex-Goldman Sachs executive Michael Evans as its President to lead its international expansion. Earlier this month, it signed exclusive deals with 20 premium Western brands including Zara, Timberland and Old Navy to become the sole third-party online sales platform for these brands.

Alibaba shares ticked up 0.42% to $73.71 in pre-market trading Thursday.